Mr. RUSSELL. I would call attention, Mr. Chairman, to the fact that to take that exception out here and leave these bonds entirely tax exempt would make this plan much more workable. As the Senator suggests, the workability of this plan is dependent a good deal upon these bonds having a market

Senator COUZENS. They would not have very much of a market if they are taxable as to surtaxes.

Mr. RUSSELL. It will curtail the market very greatly.

Senator COUZENS. That is what I have in mind. I do not want to make any more tax exempt, but I do not want people handicapped by more bonds than can be marketed.

Mr. RUSSELL. You see, when we come to operate under this act, if we do, there are certain individuals that will take these bonds doubtlessly for mortgages that they do not know how to administer, and there are certain institutions that will take them that can continue to hold them, but there are banks in liquidation, and there are other institutions that would take these bonds if they had a market for them and convert them into cash. If they cannot convert them into cash they cannot take them. Therefore, if they could be made more marketable, the act would operate very much more effectively.

Senator TOWNSEND. Have you made any survey that you could use to make a definite estimate of what the interest is on these mortgages that are below $10,000 at the present time?

Mr. RUSSELL. Senator, I could not give any definite figures on that. I am very well acquainted with the figures of the country, but they are so miscellaneous that it seems to me it is impractical to get at a definite figure.

Senator COUZENS. What is the range? The range is large?
Mr. RUSSELL. As to interest rates on mortgages?

Senator COUZENS. Yes.

Mr. RUSSELL. On $10,000 homes; I would say that the average rate on mortgages on homes up to $10,000 is very near 7 percent. Senator TOWNSEND. Very near 7 percent?

Mr. RUSSELL. Yes.

Senator TOWNSEND. What percent of those mortgages are held by the insurance companies, do you know?

Mr. RUSSELL. Of those mortgages, the insurance companies hold a rather small percentage.

Senator TOWNSEND. Ör below?

Mr. RUSSELL. $10,000 and below.

Senator COUZENS. Are you not mistaken about that?

Mr. RUSSELL. Well, Senator, you see, of the home mortgages, about 20 billion, the building and loan associations hold about 6 billion, and insurance companies have probably—it is probably here somewhere but I haven't it-not over about 4 billions.

Senator COUZENS. My recollection was that when these insurance companies were buying mortgages quite freely they selected those low home mortgages.

Mr. RUSSELL. The smaller ones?

Senator CoUZENS. Yes.

Senator TOWNSEND. That is my impression.

Senator CoUZENS. Because of the interest in the home and the diversification being much greater with the small mortgage. For example, one of these closed banks in Detroit has, as I recall it, approximately $150,000,000 in mortgages, and the average is only $2,800.

Mr. RUSSELL. Yes. Now, that is a bank.

Senator COUZENS. Yes; and that was the general policy that was adopted by the insurance companies, if my information is correct.

Mr. RUSSELL. In my own city, Atlanta, Ga., there are several insurance companies that have in the neighborhood of $10,000,000 each loaned there, and they are represented usually by brokers who handle the money and charge commission for it, about 1 percent a year, and they rarely make a loan less than $3,000. It is not profitable to the broker to handle a $1,000 loan or a $2,000 loan, and it is profitable to handle 3, 4, 5, 6, 8, 10 thousand or more. And so probably 90 percent of all of the home lending in my home city is done by the insurance companies, and they have the larger home mortgages, and the local institutions have the $1,000, $15,000, and $2,000 loans. There are a larger number of those smaller loans, but the insurance companies have nearly all of the bigger home mortgages.

Senator TOWNSEND. As a matter of fact, a small percentage of the home mortgages are less than $2,000?

Mr. RUSSELL. Not a small percent, Senator. The building and loan association mortgage is pretty small.

Senator COUZENS. What is the average?

Mr. RUSSELL. And a great many private mortgages are pretty small. For instance, illustrating again by my own city, in three fourths of the city there are very few homes that cost over $5,000, or are worth over $5,000 in value, and therefore the mortgages are $2,000, $2,500 to $3,000 in that part of the city.

Senator TOWNSEND. Those homes have not been built recently? Mr. RUSSELL. Most of them are older homes, although they are still building little homes, and they are still making $1,000 and $1,500 loans on tiny, little homes.

Senator COUZENS. Are you going to hear any more witnesses this morning?

Senator BULKLEY. Yes; we have another witness this morning. Mr. RUSSELL. I am through, Senator. Thank you.

Senator BULKLEY. Very well; we thank you very much, Mr.

Russell.

Mr. RUSSELL. Mr. Chairman, while I am here, I have found and would like to present to have inserted in the record some figures, if I may, that might show a number of counties in which there are no home financing institutions.

Senator BULKLEY. All right; they will be inserted.

(The matter submitted by Mr. Russell is here printed in full as follows:)

Total number of counties in each Federal home-loan bank district and number and percent of counties without eligible1 home-financing institutions

Number of counties in each State, number of counties and percentage of population in counties without eligible1 home-financing institutions, and number of counties having building and loan associations, savings banks, and insurance companies

Number of counties in each State, number of counties and percentage of population in counties without eligible home-financing institutions, and number of counties having building and loan associations, savings banks, and insurance companies-Continued

STATEMENT OF FRANKLIN B. LORD, ATTORNEY AT LAW, NEW YORK CITY

Senator BULKLEY (chairman of the subcommittee). Mr. F. B. Lord is here at the suggestion of Senator Wagner. Will you please give your name and connection to the reporter?

Mr. LORD. Franklin B. Lord, 25 Broadway, New York City.
Senator COUZENS. What is your occupation?

Mr. LORD. I am a lawyer, sir.

Senator COUZENS. Whom do you represent?

Mr. LORD. I am here on account of a letter I wrote Senator Wagner, because I am secretary and treasurer of the Gibson Corporation, of which Mr. Gibson is president.

Senator BULKLEY. What is the Gibson Corporation?

Mr. LORD. It is a building corporation. Mr. Gibson has built 2,500 houses, and he came down here at Senator Wagner's request

to

Senator COUZENS (interposing). So you are interested in building; is that it?

Mr. LORD. We are interested in building, but we are also interested in some 1,280 people who own our homes, and we are trying to help them out.

I understand that Mr. Gibson and I appear before the committee at the suggestion of Senator Wagner. His suggestion was prompted by a letter I wrote him stating that as secretary and treasurer of the Gibson Corporation I was naturally interested in the so-called home mortgage bill. I also informed Senator Wagner that Mr. Gibson had built over 2,500 homes in Queens and Nassau Counties and was very familiar with the situation in regard to the mortgages on small homes and that he would be very glad to be of service to the committee. That is why Mr. Gibson and I are here.

It is not our purpose to criticize the general plan of the bill, to pose as economists, nor have we any knowledge of the likelihood of to what extent mortgagees will be inclined to accept the Home Owners' Loan Corporation's bonds in lieu of principal.

In the first place, as Mr. Gibson will show you, in Nassau and Queens Counties, the first mortgages made by the mortgage companies and other institutions rarely exceed 50 percent of the value of the property at the time when the mortgage was made; that usually there is a substantial second mortgage which carries an amortization clause.

The following is an example of what is happening. In 1925 the Gibson Corporation sold a house with a first mortgage of $2,600 and a second mortgage of $3,400 for a total consideration of $6,500. That is, there was $500 cash, $3,400 second, and $2,600 first.

Senator TOWNSEND. Were you talking about both mortgages? Mr. LORD. Both mortgages, Senator. The second mortgage has now been reduced to $986.85 and the first mortgage remains at $2,600. Together these mortgages amount to $3,586.85 which is less than 54 percent of the value of the house.

Senator COUZENS. You mean of the sale price of the house?

Mr. LORD. Of the sale price of the house, Senator. I do not think that has depreciated very much, because there are none being sold. Senator TOWNSEND. They are 7 years old now?

Mr. LORD. Six or seven years old, sir.

The first mortgagee threatens to foreclose its mortgage for failure to pay taxes and interest. It would afford this home owner no relief to have the proposed corporation take over the first mortgage. If the proposed corporation advances money to pay interest and taxes, it will be benefiting the second mortgage, but it will not benefit the home owner, because he will still be faced with the necessity of meeting the demands of the second mortgagee and subject to foreclosure and loss of his home notwithstanding the purchase by the proposed corporation of the first mortgage and its advances for taxes and interest on the first mortgage.